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Empirical Search Strategies Seeks Downside Protection Option at Avigen, Inc.
Date:3/20/2009

CHICAGO, March 20 /PRNewswire/ -- Empirical Search Strategies, LP. ("ESS"), the beneficial owner of approximately 2.3% of the Avigen, Inc.'s (Nasdaq: AVGN) outstanding common stock, has proclaimed their support for a "downside protection" measure described by the Biotechnology Value Fund ("BVF"). ESS believes a clearly articulated downside protection measure is beneficial to all shareholders for the following reasons:

  • First, offering downside protection guarantees shareholders an opportunity for liquidity. Without a liquidity option, shareholders who decide to exit their Avigen position for individual reasons (or those who view the final transaction unfavorably) will be forced to sell shares into an extremely illiquid market environment. It is not uncommon to see a 5% bid/ask spread in Avigen stock on any given day.

  • Second, there is currently excess cash on the balance sheet of approximately $35mm (which includes a healthy, but unwelcome burn rate of approximately $10mm and an estimate of required capital/miscellaneous costs of roughly $2mm throughout 2009). This excess cash is not needed to sustain the sale of AV411 or to pursue the Genzyme partnership. To ensure agency costs are limited, management should publically state they will either (i) distribute this excess cash immediately, or (ii) structure a deal similar to the MediciNova deal that offers shareholders an exit option for a specific amount and at a specific time in the future.

  • Third, Avigen is not a bank. Management should focus on selling their value-proposition: experience and know-how in the AV411 program, and continuity and understanding of how to maximize value from the Genzyme partnership. It may seem sensible to bargain for a "good dea
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SOURCE Empirical Search Strategies, L.P.
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